Looking to start a life time of investments.

by TheDizzle 22 January 2010 |

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Need quite a bit of help. I'm 23, and looking to set up investments with my partner (23). I'm currently between jobs and she's very stable in hers. We have a cash ISA (which I think sucks) of about 4k, and we put £450 into it every month. For cash we're pretty ok, sitting on around 2-3 months, with very little expenses. I started a company and have a small loan to repay, which is my first objective when getting a job.

I've been reading Fool for the past 2 days, and am definitely looking to build a portfolio of investments which we can put money into monthly. They particularly advise Index Trackers as ISA's, so I've been looking into getting one as a core investment. Happy to put £250 into it a month and switch our current ISA in full, but am unsure of the % I should expect on average annually over say a 15-20 year period. I want to achieve 7.5% average annual returns from our entire portfolio, whilst continuing to invest on a monthly basis. The whole cumulative returns thing.

I really just need some customised advice on how to get there...from here. I do plan on getting more savvy in properties and equity in time, but would ideally like some stable "core" investments to build off (and show her this is really the way to go!).

Sorry for the length, but thanks in advance for any help.

Darren.

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manzanilla posted
hi Darren,
this may sound boring, but the first thing you need to do is clear that 'small loan'. Never pay interest to anyone else! So you should save up your monthly amounts until you can simply settle the loan (assuming you can't make overpayments to it).
Next you need to discuss a road map for the next 5-10 years with your partner. Do you want to buy somewhere? If you do, then you shouldn't be risking the deposit for this on the stock market. Of course it could go up by 10 or 20%, but it could also go down by 20 or 30%.
There are lots of ways to make money in life, investing is only one of them. If you can have a job and build up a business in your spare time, then that could be very lucrative. At this stage, investing your time and energy into maximising your income is likley to pay off far more than wondering about the potential returns on trackers.
So, go and get a job! If you aren't qualified for the job you want, work out a plan to get the qualifications. Invest in yourself and it can pay off far more than investing in the stock market.
manzanilla
Posted on 22 January 2010 | Love 2 loves Report
804

MikeGG1 posted
Interest paid is always more expensive than interest received and then what is received gets taxed, so concentrate on clearing debts before investment. Cards should always be cleared monthly. You don't really have any spare cash unless you can be sure you can do that.
As Manzanilla says, employment is a priority because the gains from that are much more than from investment.
That road map is very important at your age. Plan your lives and consider what sort of money you might realistically be earning year by year and what your expenses are likely to be.
Buying a home and having children need to be factored in if appropriate. Children are not only expensive but they do usually cause a drop in income for a while at least.
Equities should be considered as an investment for at least 5 years. It may be that your road map might indicate that cash investment would be better initially. That can provide you with a deposit for a house and to tide you over maternity leave, for example.
After that, equities have almost always provided a better yield than cash, so start with low-cast Trackers or Exchange Traded Funds. They are spread around the market for security.
You don't seem to think that your current investments are doing very well. If you indicate what rates you getting and where, I am sure we can help to boost that.
Mike
Posted on 22 January 2010 | Love 0 loves Report
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TheDizzle posted
Hi guys,

Thanks. I've been out all day since posting, so this has been my first chance to read and reply. The loan is definitely my priority, I just don't want my partner to be paying it off, I'd prefer to deal with it when I get a job. Hence the slight hold up.
I'm definitely on the "job hunt" and things are looking promising. I have a 1st degree, so hopefully my earning potential and time out of work should be high and short.
We will be setting money aside for different purposes, but currently £450 is going into our ISA every month, and the rest building as cash. When I get a job I will be able to plan more effectively for the short-term, but I do have a general idea of what to expect.
Getting into being regular investors is something I think is a must, and I'm hoping to start as soon as possible. I suppose my questions are more focused on, are index trackers the best way to start? And is 7.5% a reasonable rate to expect when investing for the long-term (20 years+)? And I of course want to be able to do the same thing for my children whenever it is I have them.
Btw, neither of us have credit cards. Just don't like them. The current ISA we started a few years ago. I'm unsure of the exact rate (I'm new to this!) but after reviewing the accounts fairly recently, the return was pathetic. I have been looking at HSBC FTSE 100 tracker and Legal and General's alternative, but haven't found much of the info I really wanted. Are these a general starting point? Virgin Money also have a tracker fund which seemed reasonable, although with management fee of 1% I felt that was way too high. Overall returns on 10 years have been 6.13%, but I have no idea how well performing this is compared to the market.
Darren.
Posted on 23 January 2010 | Love 0 loves Report
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manzanilla posted
are index trackers the best way to start?
Collective investments are a good place to start, because they give you instant diversification. So trackers, ETFs, Investment Trusts, Unit Trusts. Of these, trackers and ETFs tend to have the lowest charges, which is good :)
ETFs come in many shapes and sizes - ones inversly related to the oil price, water companies etc. You should avoid all theese until you have a very good slug of 'boring' ones first. FTSE trackers are just about as boring as you can get. You are investing hoping for solid returns, not stellar ones.
Once you have a good wodge of these, you can start thinking about other stuff. For young people with very long term savings plans I like emerging markets - over 10-20 years I'll bet that China, India, Brazil will outperform the UK, but it may be a rollercoaster ride and you don;t want your house deposit money invested there. There are some good emerging market ETFs now.
And is 7.5% a reasonable rate
to expect when investing for the long-term (20 years+)?
This is a pointless think for you to think about. What difference will it make to any of your decisions if I produce market analysis saying it's been 6.5% or 9.5% historically? Absolutely none. You are young. You can afford to ride out equity market bumps - just start stashing the cash away.
And I of course
want to be able to do the same thing for my children whenever it is I
have them.

of course! But make sure your own financial future is secure first. It may be nice to pay their uni fees, but they will be able to get loans for this and when you are retired no-one will give you a loan...
manzanilla
Posted on 23 January 2010 | Love 0 loves Report
804

MikeGG1 posted
Darren
Investment rates are meaningless when you have inflation to take account of. What you need to look at is the 'Real' return, which is the difference between the actual yield and the inflation rate. Unless you have earned more than the inflation rate, your investment has lost value.
Actuaries valuing pension schemes work in 'Real' terms all the time. The 'Real' rate is much more compariable from decade to decade.
Any 'Real' rate over 3% is reasonable.
Mike
Posted on 23 January 2010 | Love 0 loves Report

Looking to start a life time of investments.

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